Wikipedia Article On Equity Swaps

An equity swap requires a party and counterparty, often times, they are between a commercial banking institution, and a trader or perhaps just one individual writing swaps for themselves within a bank, where the counterparty is the leverage provided to carry out say, a short position, which allows you to sell any number of shares. The catch is that the counterparty, which is probably the commercial entity will be obliged to acquire shares of equal number.

Quote:

"2. It allows an investor to receive the return on a security which is listed in such a market where he cannot invest due to legal issues. For example, let's say A wants to invest on script X listed in Country C. However, A is not allowed to invest in Country C due to capital control regulations. He can however, enter into a contract with B, who is a resident of C, and ask him to buy the shares of company X and provide him with the return on share X and he agrees to pay him a fixed / floating rate of return.

Equity Swaps, if effectively used, can make investment barriers vanish and help an investor create leverage similar to those seen in derivative products."

Think: 'A' for American. 'B' for broker, or perhaps even: 'Berlin Exchange,' and 'C' for Canada. 'script X' would be GBN.V (for example)

A broker or commercial entity is not required to buy shares before selling them in quantity in Canada. As long as they fall under some sort of commercial agreement, then there are theoretically no failures to deliver. The majority of trades are short interest, so its highly likely this arrangement is one with short interest in the mix.

http://en.wikipedia.org/wiki/Equity_swap

-F6